Edward Provost
CBOE President and COO
CBOE Risk Management Conference Europe Welcome Remarks
Tuesday, September 29, 2015
8:30 – 9:00 a.m.
Thank you, Paul. And thanks to all of you for joining us for CBOE’s 4th Annual Risk Management
Conference Europe. We are delighted to be here in Geneva with you.
First, let me dispense with a formality by saying that our comments may contain forward-looking
statements which involve some risks and uncertainties. Actual results may vary. Please refer to our
filings with the SEC for more detailed information about the risks and uncertainties.
I’m very pleased to say that Paul and his team have created another high-caliber RMC agenda and, as
usual, we limit the number of speakers per session so that topics are covered in depth. Our trademark
sessions are conducted by and for market participants, so your participation also makes our program
unique, and I want to thank you for that. Before introducing our keynote speaker, I have a few CBOE
updates I hope will be of interest.
It’s gratifying to open with a VIX product update as some of the very early adopters in VIX futures and
options trading were here in Geneva and Zurich. Obviously they understood the potential of these
products, but I don’t know if anyone could have envisioned the widespread utility we see in VIX trading
today. Or that CBOE would one day host a very VIX-centric conference here in Geneva.
Of course, this year was a bit of an anomaly for VIX. Before the spikes in VIX beginning in July, and the
subsequent return to more normal levels of VIX and VIX trading, most of 2015 was spent in a historically
low volatility regime with the U.S. stock market steadily grinding upward. Some fairly lackluster trading
resulted but, as our customers tend to have more time in quieter trading periods, we took the opportunity
to focus on education and to work with customers on new initiatives. Two VIX initiatives were of primary
focus for us, VIX Weeklys and extended trading hours.
We created VIX Weeklys by working closely with our VIX user base, including people in this room, who
expressed a preference for volatility exposures that more closely tracked the spot VIX and that filled the
gaps between monthly VIX expirations. We launched VIX Weeklys futures in July, and I’m pleased to say
we have seen steady traction from day one. We expect trading to continue to build as we add sequential
expirations series and VIX Weeklys options, which we plan to launch on October 8. Weeklys open up a
new array of strategies and opportunities – some of which will be covered here in-depth by “real” VIX
experts, so I will move on to other CBOE news.
Expanding access to VIX trading for a growing worldwide customer base has also been a top priority as
VIX is increasingly viewed as a proxy for global market volatility. It was critical for us to improve access
for our customers here in Europe and beyond, and we began with the implementation of near 24-hour
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trading in VIX futures in June 2014. As a result, an average of nearly 9 percent of VIX futures now trade
outside regular U.S. trading hours -- on days when we’ve seen market breaking news overseas, that
figure has grown to 20 percent.
This year we launched an additional six-hour session in VIX options, as well as in SPX options. Like VIX,
SPX options -- which enable investors to efficiently take a position on the U.S. market -- have
tremendous appeal for global investors. The new VIX and SPX options session therefore begins at 2:00
a.m. Chicago time, which aligns with the market open in London and the close in Asia.
Trading in both products during European trading hours has steadily increased since the new session
launched in March and, not surprisingly, increased dramatically when volatility spiked in July and August.
In October, we plan to add SPXPM options to our extended trading session and we will continue to
expand trading hours where we see overseas need and demand. Your feedback on that is highly valued.
In other index-related news, this year we entered into an agreement that makes CBOE the exclusive
provider for cash-settled options on numerous FTSE and Russell Indexes. CBOE subsequently became
the exclusive U.S. home for Russell 2000 Index options (RUT) on April 1st. I’m pleased to announce
today that we plan to launch options on three additional Russell Indexes on October 20: the Russell
1000, the Russell 1000 Value, and the Russell 1000 Growth indexes. Copies of the press release are
available in the back of the room for more information. Plans are underway for us to introduce additional
FTSE Russell products going forward, including options on the FTSE 100 and FTSE China 50.
A new licensing agreement with MSCI enabled us this year to launch options on the MSCI EAFE and
MSCI Emerging Markets (EEM) Indexes. Our ability to offer cash-settled, European-style options on
these indexes, in addition to the ETF options, is very similar to our SPX and SPY offering. We are very
excited about what this means for customers and are currently focused on building liquidity in these
products.
On the performance benchmark front, CBOE created 10 new strategy-based benchmark indexes,
including new versions of the CBOE S&P 500 BuyWrite Index (BXM) and PutWrite (PUT) Indexes. We
began disseminating intra-day values for the new benchmarks in August. We are now preparing to
launch performance benchmarks tied to the Russell 2000, a couple of which we previewed in our first
session yesterday.
We also launched four new benchmark indexes in collaboration with Eurekahedge, a Singapore-based
hedge fund research company. The new indexes, which measure the performance of hedge funds that
employ distinct volatility-based investment strategies, are the first of their kind. I know many of you will
be interested in learning more. I encourage you to speak with Paul, who is leading this initiative for
CBOE and who, rightly so, is very excited about it. Several firms that have funds represented in the
indexes are here at RMC; Paul would be happy to make introductions for you to speak to them as well.
One last CBOE update that’s a little further afield, but one we think will be a groundbreaking market
innovation, concerns our recently announced partnership with Environmental Financial Products (EFP) to
launch a new interbank lending exchange, called the American Financial Exchange (AFX). The new
exchange, set to launch next quarter, is an electronic marketplace for small- and mid-sized banks to lend
and borrow short-term funds. AFX also plans to provide a transaction-based interest-rate benchmark
through weekly auctions of a new benchmark rate for U.S. interbank lending, called Ameribor. CBOE
looks forward to hosting, operating and helping to further develop this truly innovative marketplace.
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I would like to mention a few conference attendees who are part of the growing CBOE family and whose
participation here in Geneva adds significant value to RMC. Clearly we are thrilled to continue to roll out
new products with long-term partners and collaborators. We’ve been at it a long time and we are
pleased, as always, to have several members of the S&P Dow Jones and FTSE Russell teams here at
RMC to engage with you throughout the conference.
We are also delighted to welcome new partners, such as our Livevol team, to RMC. CBOE recently
acquired the options analytics and data tools of Livevol, Inc., a growing provider of equity and index
options technology for professional and retail traders. Their trade analysis and volatility modeling
technologies are a great fit with CBOE’s trade support services and we are pleased to demo that
technology here at RMC. If you’re not familiar with Livevol, this is a great opportunity for an easy test
drive. If you are already acquainted, check out some of the new cutting-edge features.
We also welcome our partners from Tradelegs, here to demo their newly updated Derivatives Strategist
software, which generates optimized trade ideas based upon an investor’s equity risk and return
predictions, the investor’s capital constraints, and market data supplied by Tradelegs. The timing for a
demo could not be better as the updated software includes support of index options, beginning with SPX,
and a portfolio hedger feature we are particularly excited about and that we think you will find of interest
as well. The Tradelegs team is more than happy to walk you through the new features.
Finally, I am pleased to note that this year we are expanding RMC beyond the U.S. and Europe, with the
first RMC Asia, which runs November 30 to December 1 in Hong Kong. Our ability to take RMC to Asia
was made possible by the success of our U.S. conference, and your growing participation in RMC
Europe over the past four years. Working closely with customers like you, in forums like this one, helps
us create products and services that add value to your trading experience and expertise.
I encourage you to share your thoughts and questions with me or anyone from the CBOE team. The
ability to connect with you one-on-one, formally or informally, is one of the many benefits of RMC. We
look forward to getting to know you better in this wonderful setting. Thank you again for joining us.
----Now, it is my pleasure to introduce this morning’s distinguished keynote speaker, Paul Donovan.
As global economist and managing director, Paul is responsible for formulating and presenting the UBS
Investment Research global economic view.
Paul holds degrees from the University of London and Oxford University. He is an Honorary Fellow of St
Anne’s College in Oxford, sitting on its investment committee and development board and serves as a
member of the Vice-Chancellor’s Circle of Oxford.
Paul is co-founder of the Peter Culverhouse Memorial Trust, a cancer research and patient care charity,
and an occasional economic adviser to the East London Business Alliance, an urban regeneration
charity. He is an amateur heavyweight boxer, a keen skier, and an accomplished author. His most
recent book -- "The Truth about Inflation" -- was published in April.
Paul joined us for RMC in Portugal two years ago and we’re delighted to have him back again this year.
Please join me in welcoming Paul Donovan.
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